Colgate-Palmolive Delivers a Disappointing Dividend Increase

Colgate-Palmolive (CL[1]), together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition.

In the past week, the company approved a 5.90% increase in its quarterly dividends to 36 cents per share. This marked the 51st consecutive annual dividend increase for this dividend champion[2].

When I last analyzed the company[3] several weeks ago, I found it to be overvalued. At this stage, I would be reluctant to add to my position in the stock, unless of course it declines from here. It is selling for 26.80 times earnings, and yields 2.30% based on the new dividend.

The latest dividend increase is the slowest since 1980, when the company increased distributions by a mere 3.67%. The company also raised distributions by a mere 6.90% in 2012, but this was followed by a 9.70% increase in the following year.

Year

Quarterly Dividend

Raise

2014

$ 0.3600

5.88%

2013

$ 0.3400

9.68%

2012

$ 0.3100

6.90%

2011

$ 0.2900

9.43%

2010

$ 0.2650

20.45%

2009

$ 0.2200

10.00%

2008

$ 0.2000

11.11%

2007

$ 0.1800

12.50%

2006

$ 0.1600

10.34%

2005

$ 0.1450

20.83%

2003

$ 0.1200

33.33%

2001

$ 0.0900

13.92%

1999

$ 0.0790

14.91%

1997

$ 0.06875

17.02%

1995

$ 0.05875

14.63%

1994

$ 0.05125

13.89%

1993

$ 0.04500

16.13%

1992

$ 0.03875

16.96%

1991

$ 0.03313

17.77%

1989

$ 0.02813

21.67%

1987

$ 0.02312

8.80%

1985

$ 0.02125

6.25%

1983

$ 0.02000

6.67%

1981

$ 0.01875

7.14%

1980

$ 0.01750

3.67%

1979

$ 0.01688

8.07%

1977

$ 0.01562

13.60%

I obtained the data for the table below from Yahoo! Finance. It shows dividend payments in the year they were increased, and the percentage increase from the previous payment.

On a completely unrelated note, did you know that an investment in 1985 would be generating an yield on cost of 99% today? I used Yahoo! Finance data again, but double checked the yields against my manuals from the time, because the 1985 current yields seemed a little high.

However, it seems like Colgate was yielding a lot at the time, but you also need to remember that long-term Treasuries yielded close to 10% as well. That definitely shows that picking a company with a high current yield that can grow distributions over time at a double digit rate can result in some tremendous compounding of income and invested capital.

Year

DPS

Price

Yield

YOC

2014

$ 1.420

$ 63.380

2.24%

99.17%

2013

$ 1.330

$ 65.210

2.04%

92.89%

2012

$ 1.220

$ 52.270

2.33%

85.20%

2011

$ 1.135

$ 46.195

2.46%

79.27%

2010

$ 1.015

$ 40.185

2.53%

70.89%

2009

$ 0.860

$ 41.075

2.09%

60.06%

2008

$ 0.780

$ 34.270

2.28%

54.47%

2007

$ 0.700

$ 38.980

1.80%

48.89%

2006

$ 0.625

$ 32.620

1.92%

43.65%

2005

$ 0.555

$ 27.425

2.02%

38.76%

2004

$ 0.480

$ 25.580

1.88%

33.52%

2003

$ 0.450

$ 25.025

1.80%

31.43%

2002

$ 0.360

$ 26.215

1.37%

25.14%

2001

$ 0.338

$ 28.875

1.17%

23.61%

2000

$ 0.316

$ 32.275

0.98%

22.07%

1999

$ 0.296

$ 32.415

0.91%

20.64%

1998

$ 0.275

$ 22.878

1.20%

19.21%

1997

$ 0.265

$ 17.870

1.48%

18.51%

1996

$ 0.235

$ 11.021

2.13%

16.41%

1995

$ 0.220

$ 8.196

2.68%

15.36%

1994

$ 0.1925

$ 7.199

2.67%

13.44%

1993

$ 0.1675

$ 6.898

2.43%

11.70%

1992

$ 0.1438

$ 6.019

2.39%

10.04%

1991

$ 0.1275

$ 5.160

2.47%

8.91%

1990

$ 0.1125

$ 3.794

2.97%

7.86%

1989

$ 0.0975

$ 3.176

3.07%

6.81%

1988

$ 0.0925

$ 2.282

4.05%

6.46%

1987

$ 0.0869

$ 1.8400

4.72%

6.07%

1986

$ 0.0850

$ 1.8550

4.58%

5.94%

1985

$ 0.0813

$ 1.4319

5.67%

5.67%

The company earned $2.38 per share in 2013, and is expected to earn $3.01 in 2014 and $3.32 in 2015.

However, I believe that dividend increases are decisions by the Board of Directors, which show their expectations for profit growth in the next 1 – 2 years. The decrease in dividend growth shows that management does not expect double digit earnings increases in the near term. I do think that this is a temporary situation however, and the Board will increase distributions by close to 8-9%/year over the next 5 – 10 years.

The company still has strong competitive advantages[4], pricing power and a portfolio of branded products, which consumers buy regularly for decades.

That being said, I would hold on to my existing Colgate – Palmolive shares but would probably allocate my dividends elsewhere[5], where I can find better values for my money.